Sources of finance Flashcards
(8 cards)
Overdrafts
One of the most common sources of finance however they should be used carefully and only in emergencies as they can be expensive due to high interest rates.
Trade credit
This source of finance allows a business to obtain raw materials and stock but pay for them at a later date. This payment is usually made once a business has had the opportunity to sell products and receive payment.
Personal savings
Personal savings is money that has been saved up by an entrepreneur. This source of finance does not cost the business, as there are no interest charges applied.
Venture capital
Venture capital is money invested by an individual or group that is willing to take the risk of funding a new business in exchange for an agreed share of the profits. The venture capitalist will want a return on their investment as well as input into how the business is run.
Share capital
Share capital is money raised by shareholders through the sale of ordinary shares. Buying shares gives the buyer part ownership of the business and therefore certain rights, such as the right to vote on changes to the business. This can slow down decision-making processes.
Bank loan
A bank loan is money lent to an individual or business that is paid off with interest over an agreed period of time. Usually this rate of interest is fixed. This means that the business knows in advance what the cost of borrowing will be and what monthly repayments will be required. This allows the business to plan ahead.
Retained profit
When a business makes a profit, it can leave some or all of this money in the business and reinvest it in order to expand.
Crowdfunding
Crowdfunding involves a large number of people investing small amounts of money in a business, usually online. Commonly used crowdfunding websites include Crowd funder, GoFundMe and Kickstarter.
